Tips for Understanding a Credit Report

When you need to buy a new car, or television, or even something as major as getting a mortgage to buy a house, the amount you can borrow (if at all) will be determined by your credit score. If you have a bad credit score, you’ll probably be unable to get the loan or finance that you need, no matter your current circumstances. Therefore, knowing what your credit report score is and what makes it up is important for any purchases you can’t pay cash for.

Simply put, a credit score is what finance companies work by to determine whether lenders can provide you with credit to make any purchases. There are three main credit companies worldwide Experian, Equifax and TransUnion. All three are based in the United States, but between them they control all credit decisions for everyone, regardless what country you live in.

A credit report score is a number made up of three digits, and the higher your score the better your chance of getting credit. The way the score is made up is fairly simple, yet can mean the difference between an easier life and one where you can afford to buy very little. The breakdown for a credit score is as follows:

Payment history. This is the most important of the ways that a credit score is compiled, since it accounts for 35% of your overall rating. Whenever you take out a credit agreement, a monthly payment system is set up if you stray from this, your credit rating goes down. Therefore, keeping to the payment schedule is crucial if you wish to remain in good credit. Debt level. Almost as important as your payment history when it comes to your credit report score, this accounts for 30% of your overall rating. Basically, the higher credit limit you have and the closer you are to that limit, the smaller credit rating you’ll have. So instead of maxing out your credit cards, try just keep them at a third or lower of your credit limit. Length of credit history, which makes up 15% of your rating. Although it might seem strange, the longer you’ve had credit with companies, the better your score (as long as the accounts are up-to-date). It shows that you can be trusted, and lenders will be happy to deal with you. Credit enquiries. Every time you make a credit application, it goes on your credit report make too many, especially of you’re turned down for some, and your credit score will be reduced. This accounts for 10% of your overall credit rating. Different credit companies. Although you may not think so, having credit agreements with several different companies will give you a higher credit rating, since it shows that you can manage various levels of finance. However, once again, this will only be the case if you are current with your payments, and this final score accounts for 10% of your credit rating.

Although a credit report score can soon fall into the red if you’re not careful, it can also be easy to manage and keep in the black, as long as you are good with your finances and understand how the score is made up.